Kin Sheng Group: Sailing To Build A Global Leader In Knitted Sports Apparel Manufacturing

The company has released 2020-2022 years' development strategy plan (outline). Put forward the goal of becoming the leader of global knitted sportswear manufacturing, and strengthen the leading position of the company through the realization of "three high one low". Compared with the "leader of the clothing industry" proposed in the 2018 annual report, the new development strategy mainly includes: 1) extending the product to the whole category of knitted apparel; 2) focusing on the customers as the sports brand, we believe that the company's new voyage will give full play to its manufacturing advantages on the high quality track of sports.

"Three high one low", high-quality layout global production. The company will deepen intelligent manufacturing to achieve "high efficiency", turn to ODM, ensure product "high quality", implement sustainable "responsibility", optimize productivity and reflect "low cost" competitiveness, so as to achieve the planning goal. And in the implementation of the practical measures, the company will:

1) to invest 500 million yuan in the next three years, 2000 new hosiery machines in Vietnam, and 330 new seamless looms in Vietnam, Xingan.

2) increase the number of R & D teams, integrate the accumulated design resources, production data and raw material enterprises and other external resources, establish a product database associated with the product labelling system, and speed up the ODM design capability.

3) through the introduction of "automatic packaging", the introduction of visual exploration machines to replace manual inspection, loom networking to achieve production control, and comprehensively enhance the level of intelligent manufacturing;

4) increase the proportion of services to the domestic market. In 2018, the company stabilized its core customers and developed overseas brands such as Nike, Adidas, Gap and so on, and 85% of its revenue came from export business. The new planning objective developed JSC for women's advanced sports brand, while expanding sales with international brands in China and opening up the domestic market.

5) establish data driven mode and perfect internal management. The company aims to speed up information construction, strengthen the direct management of the production base through the system, and add new design and development director, information director and private brand vice president to adjust the organizational structure to support the new planning.

We expect that in the next three years, the production capacity of cotton socks and seamless products will continue to increase, and sales will increase. The sales volume of cotton socks products in 2019, 2020 and 2021 will be 3.05, 3.63 and 388 million respectively, and the sales of seamless products will be 2300, 2900 and 35 million.

Under the continuous expansion of capacity, we expect revenue in 2019, 2020 and 2021 to be 18.4, 22.3 and 2 billion 570 million yuan, respectively, up 17%, 21% and 15% respectively.

Taking into account the company's newly released planning and capacity arrangements, we have slightly raised our profit forecasts. We expect revenue in 2019, 2020 and 2021 to be 18.4, 22.3 and 2 billion 570 million yuan, up 17%, 21% and 15% over the same period. Gross profit margins were 30%, 31% and 32% respectively, with net profit of 2.65, 3.42 and 433 million yuan, up 28%, 29%, 26% respectively.

We gave the 2020 PE valuation interval 18-20X, corresponding to the reasonable value range 14.80~16.44 yuan, maintaining "better than big city" rating.